[Skip to Content]

Register to receive the OMFIF Daily Update and trial the OMFIF membership dashboard for a month.

* Required Fields

Member Area Login

Forgotten Password?

Forgotten password

Hollande’s setback may herald wider European shifts

Hollande’s setback may herald wider European shifts

Difficulties in Paris, weakened position abroad

by David Marsh

Mon 31 Mar 2014

French President François Hollande faces an intractable dilemma over changing his accident-prone government two months before European Parliamentary elections, expected to deal him an even greater defeat than in Sunday’s municipal polls.

The far-right Front National (FN) won less town hall seats than earlier seemed likely, but Sunday’s result – a big swing to the centre-right UMP party of former president Nicolas Sarkozy – was in many cases the worst outcome for France’s lacklustre president.

Had the FN managed to take even more than the dozen towns and cities it won on Sunday, then both mainstream parties on left and right would have shared in the reverse. As it is, the setback is for the left only. Sarkozy, seeking revenge after losing to Hollande in 2012, is now expected to build momentum ahead of the presidential election in 2017.

Political manoeuvring in Paris should not distract attention from the wider picture. Through a combination of open power-play and behind-the-scenes diplomatic and monetary positioning, Germany is moving into a position under which, as condition for stabilising the currency bloc, it can exert much greater control over the euro area as a whole.

The French president, for 50 years the classic counterweight to German influence in Europe, has lost power and prestige in a highly visible way and at a difficult time for Europe. A prolonged growth slowdown has brought resolution of some of the euro area’s crassest economic imbalances – but this has been accompanied by progressive indications of incipient deflation that risks worsening further the position of indebted nations.

The delicate political position in both France and Italy, the bloc’s No. 2 and No. 3 economies after Germany, is likely to be one more factor preventing the European Central Bank (ECB) from taking any decisive action on easing its monetary stance when the council meets on 3 April in Frankfurt.

Rather than any dramatic short-term moves, a longer-term consolidation appears more likely, under which Germany undertakes patient political and economic measures to strengthen the euro bloc. One possibility is that sweeping personnel changes could take place in the next two years under which Jens Weidmann, the Bundesbank president, becomes head of the ECB. Mario Draghi could before too long face calls to return to Rome to take over the presidency of Italy from Giorgio Napolitano, the 88-year-old head of state. Many believe that his replacement by a younger man with a reputation for international economic management could accelerate Italy’s tenuous progress in economic reforms – arguably the euro area’s most difficult and crucial economic task.

If Draghi were to bow out in 2015, half-way through his eight year term, he would depart as a much-feted euro saviour after his 2012 promise to purchase unlimited quantities of government debt. Draghi would certainly leave Frankfurt with Germany’s blessing, all the more because this could pave the way for Weidmann to take over at the ECB.

Temperamentally and politically, Weidmann – a former adviser to Chancellor Angela Merkel – would be a far better choice than former Bundesbank president Axel Weber. Weidmann’s predecessor was groomed for the job (eventually taken by Draghi) in 2010 but finally rejected the idea in early 2011. Sabine Lautenschläger, the former Bundesbank vice president, who has just moved to the ECB board, could return to the Bundesbank in the No. 1 position if Weidmann went to the ECB in two years.

The move to the right in Sunday’s elections has confirmed France’s position in most of the post-war period, where the right has a built-in electoral advantage over the left of roughly 10 percentage points. The FN’s performance on Sunday, when it won about 7% of the vote, was highly influenced by tactical voting in different municipalities. The FN’s potential is plainly much higher, shown by its success in winning 17% of the national vote in the first round of the presidential election in 2002.

Hollande’s reputation for hesitancy, plus the unavoidable problem that any new prime minister will face a fresh setback in May’s European parliament election, make him reluctant to move quickly to replace the current No. 1 in his two year old administration, Jean-Marc Ayrault. However, he is under great pressure to do so.

He now faces the unenviable dilemma of having to choose a prime minster who will shift his party to the left just as the country at large has confirmed its predilection for the right.  Manuel Valls, the interior minister, is widely seen as Ayrault’s most likely replacement, but he is probably not left-wing enough to appease many of Hollande’s dwindling band of party supporters. Two other possible successors, his former partner Ségolène Royal, and the current foreign minister, Laurent Fabius, are both rivals – and Hollande would have great qualms in putting them forward.

Tell a friend View this page in PDF format